THE SECRET RECORDINGS OF CARMEN SEGARRA
THIS AMERICAN LIFE: An unprecedented look inside one of the most powerful, secretive institutions in the country. The NY Federal Reserve is supposed to monitor big banks. But when Carmen Segarra was hired, what she witnessed inside the Fed was so alarming that she got a tiny recorder and started secretly taping. MORE
PRO PUBLICA: In the spring of 2012, a senior examiner with the Federal Reserve Bank of New York determined that Goldman Sachs had a problem. Under a Fed mandate, the investment banking behemoth was expected to have a company-wide policy to address conflicts of interest in how its phalanxes of dealmakers handled clients. Although Goldman had a patchwork of policies, the examiner concluded that they fell short of the Fed’s requirements. That finding by the examiner, Carmen Segarra, potentially had serious implications for Goldman, which was already under fire for advising clients on both sides of several multibillion-dollar deals and allegedly putting the bank’s own interests above those of its customers. It could have led to closer scrutiny of Goldman by 
regulators or changes to its business practices. Before she could formalize her findings, Segarra said, the senior New York Fed official who oversees Goldman pressured her to change them. When she refused, Segarra said she was called to a meeting where her bosses told her they no longer trusted her judgment. Her phone was confiscated, and security officers marched her out of the Fed’s fortress-like building in lower Manhattan, just 7 months after being hired. “They wanted me to falsify my findings,” Segarra said in a recent interview, “and when I wouldn’t, they fired me.” Today, Segarra filed a wrongful termination lawsuit against the New York Fed in federal court in Manhattan seeking reinstatement and damages. The case provides a detailed look at a key aspect of the post-2008 financial reforms: The work of Fed bank examiners sent to scrutinize the nation’s “Too Big to Fail” institutions. In hours of interviews with ProPublica, the 41-year-old lawyer gave a detailed account of the events that preceded her dismissal and provided numerous documents, meeting minutes and contemporaneous notes that support her claims. Rarely do outsiders get such a candid view of the Fed’s internal operations. MORE
BLOOMBERG VIEW: Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street’s regulators are people who are paid by Wall Street to accept Wall Street’s explanations of itself, and who have little ability to defend themselves from those explanations. Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn’t pay it much attention. That may very well change today, for today — Friday, Sept. 26 — the radio program “This American Life” will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it. The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived. MORE
PRO PUBLICA: Former bank examiner Carmen Segarra vaulted into public consciousness earlier this month when she filed a wrongful termination lawsuit alleging that the Federal Reserve Bank of New York fired her after she refused to go soft on investment banking behemoth Goldman Sachs. As ProPublica has reported, the Fed hired Segarra in late 2011 as part of a group of examiners brought on to monitor systemically important banks in the aftermath of the Dodd-Frank regulatory overhaul. The Fed wanted experts in key areas — such as operations, compliance and credit risk — to examine the “Too Big To Fail” financial institutions. Segarra’s career path seemed to make her a perfect fit. Segarra, 41, was born in Indiana, raised mostly in Puerto Rico and graduated from Harvard. Her father, a doctor, encouraged a life-long love of learning. She is a polyglot, fluent in Spanish and French, conversant in German and Italian. Even in the midst of preparing her lawsuit, she continued with classes in Dutch, which she says is “totally messing up my German.” After getting a master’s degree in French cultural studies at Columbia’s campus in Paris, she went on to law school at Cornell. She then spent 13 years working at different financial firms, including Citigroup and Société Générale. Outside of the office, she held leadership positions in the Hispanic National Bar Association. Hired by the Fed as a legal and compliance specialist, she was told to pay particular attention to how Goldman was complying with the Fed’s requirements on conflicts of interest. Segarra says she was fired after she found that Goldman lacked an adequate company-wide policy to manage conflicts of interest — and after her superiors urged her to change this finding and she refused.aftermath of the Dodd-Frank regulatory overhaul. The Fed wanted experts in key areas — such as operations, compliance and credit risk — to examine the “Too Big To Fail” financial institutions. Related Stories N.Y. Fed Fired Examiner Who Took on Goldman by Jake Bernstein, ProPublica, Oct. 10 Documents to Remain Open in Examiner’s Lawsuit Against Fed by Jake Bernstein, ProPublica, Oct. 14 NY Fed Fired Examiner Who Took on Goldman by Jake Bernstein, ProPublica, Oct. 15 Podcast: Lawsuit Calls Into Question NY Fed’s Bank Supervision by Minhee Cho, ProPublica, Oct. 24 Segarra’s career path seemed to make her a perfect fit. Segarra, 41, was born in Indiana, raised mostly in Puerto Rico and graduated from Harvard. Her father, a doctor, encouraged a life-long love of learning. She is a polyglot, fluent in Spanish and French, conversant in German and Italian. Even in the midst of preparing her lawsuit, she continued with classes in Dutch, which she says is “totally messing up my German.” After getting a master’s degree in French cultural studies at Columbia’s campus in Paris, she went on to law school at Cornell. She then spent 13 years working at different financial firms, including Citigroup and Société Générale. Outside of the office, she held leadership positions in the Hispanic National Bar Association. Hired by the Fed as a legal and compliance specialist, she was told to pay particular attention to how Goldman was complying with the Fed’s requirements on conflicts of interest. Segarra says she was fired after she found that Goldman lacked an adequate company-wide policy to manage conflicts of interest — and after her superiors urged her to change this finding and she refused. ” target=”_blank”> MORE
RELATED: Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) are both calling for Congress to investigate the New York Federal Reserve Bank after recently released secret recordings show the central bank allegedly going light on firms it was supposed to regulate. Warren and Brown, both members of the Senate Banking Committee, called for an investigation of the New York Fed after Carmen Segarra, a former examiner at the bank, released secretly recorded tapes that she claims show her superiors telling her to go easy on private banks. Segarra says that she was fired from her job in 2012 for refusing to overlook Goldman’s lack of a conflict of interest policy and other questionable practices that should have brought tougher regulatory scrutiny. After Segarra made the tapes public in a joint report with ProPublica and This American Life on Friday, Warren was quick to call on Congress to take action.“Congress must hold oversight hearings on the disturbing issues raised by today’s whistleblower report when it returns in November, because it’s our job to make sure our financial regulators are doing their jobs,” Warren said in a statement on Friday. “When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy. We learned this the hard way in 2008.” MORE
THIS AMERICAN LIFE: In the course of reporting our story with ProPublica, we sent lots of questions to the New York Fed and Goldman Sachs. We wanted to share those with you, along with the institutions’ responses. Our questions to the New York Fed are here. The New York Fed responded with a statement and later this email. Our questions to Goldman Sachs are here. Goldman Sachs’ response is here. And one last document that plays an important role in our story: the confidential report Columbia professor David Beim wrote for the New York Fed in 2009, as it was trying to figure out why it failed to anticipate the financial crisis and what it should do to make sure it wouldn’t fail to catch the next one. Here is a transcript of the full episode. MORE